Patrick O'Malley

Steps To Take Before Bankruptcy, And What Not To Do

Every filer’s situation is unique, but here are some issues that will come up.

Take the credit counseling classes

All filers are required to take a short, simple, on-line credit counselling class before filing, and a second class before the case ends.

Collect documents

You need good records. You will need info on all your income, debt, and assets.

Income: tax returns, paystubs, records of all other forms of income.

Debt: Mortgage, vehicle, credit cards, and medical bills are just a few.

Spending: Leases, and just about anything that you pay on a regular basis.

Assets: Real estate, vehicles, retirement plans, investments, bank accounts, personal property, etc.

File taxes

You will need the most recent year’s tax return.

Get current on essentials payments

If you are behind on payments on things that you want to keep, it may be a good idea to get current unless the strategy is to use the filing to get current on those arrears.

Switch bank accounts

If you owe a debt to the same bank that holds your savings and checking accounts, it may be a good strategy to move the money to a new bank. A bank that you owe money to is allowed to off-set that debt with money it holds in your cash accounts.

Stop automated payments

It will be much less work and expense in the long run if you stop auto-withdrawals prior to filing and then pay them manually when the time is right.

What not to do:

Don’t tap retirement accounts

Retirement accounts are normally safe from creditors. Don’t use retirement money to avoid bankruptcy.

Don’t run up debts

If the court sees that a filer ran up large, unusual, and/or unnecessary debts shortly before bankruptcy, things will go badly for the filer.

Don’t transfer assets

Unusual money transfers out of the business or giving a car away at the wrong time or done in the wrong way may be considered a ‘fraudulent transfer.’ If the court decides it is, this will create serious problems.

Related to this, be careful about paying some creditors and not others. Such ‘preferential transfers’ can include payments made up to a full year before the filing. These transfers, if done in the wrong way or at the wrong time, may be undone. This drags that third party into the case, creating more expense and slowing the filer’s case progress.

Contact us for help

Business Bankruptcy Solutions helps Coloradoans lower their debts, renegotiate contracts and save their businesses. Call (720) 674-7311 or email now to schedule a free consultation. We will discuss the problems facing both your business and personal finances, and the tools we can use to achieve your goals. We draw upon decades of legal and business experience to provide you with actionable solutions. With BBS on board, we’ll help you weather this storm.